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Andhra Pradesh High Court
Judges : A.SEETHARAM REDDY, M.JAGANADHA RAO
Commissioner of Income Tax, A.P. - Appellant
Versus
Visakhapatnam Port Trust - Respondent
Decided On : 06-17-83
INCOME TAX - Double Taxation Avoidance Agreement between India and Germany - Whether assessee is immune from liability either wholly or partly to tax on the basis of the Double Taxation Avoidance Agreement between Germany and India - Yes - Assessee is immune from liability to tax.
Fact of the Case:
The assessee, Visakhapatnam Port Trust (VPT), entered into a contract with a German company, Maschinenfabrik Buckau R. Wilf (MBW), for the supply and installation of a Bucket Wheel Reclaimer (BWR). The contract provided for payment of the purchase price in installments, with interest on the outstanding amount. The assessee paid tax on the interest income in accordance with the provisions of the Income-tax Act, 1961 (the Act). Subsequently, the assessee claimed that it was exempt from tax on the interest income under the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Germany.
Finding of the Court:
The Income-tax Appellate Tribunal (ITAT) held that the interest income was not taxable in India under the provisions of the DTAA. The Revenue appealed to the High Court.
Issues: Whether the assessee is immune from liability either wholly or partly to tax on the basis of the Double Taxation Avoidance Agreement between Germany and India?
Ratio Decidendi: The High Court held that the interest income was not taxable in India under the provisions of the DTAA. The court held that the interest income was not an independent source of income, but was part of the purchase price for the BWR. The court also held that the German company did not have a permanent establishment in India, and therefore, the income was not taxable in India under the provisions of the DTAA.
Final Decision: The High Court answered the question referred to it in the affirmative, in favor of the assessee and against the Revenue, holding that the assessee was immune from liability to tax.
( 1 ) QUESTIONS relating to the interpretation of International Tax Agreements containing international tax language fall for consideration in this reference.
( 2 ) THE question of law referred to us at the instance of the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, is as follows :"whether, on the facts and in the circumstances if the case, the assessee is immune from liability either wholly or partly to tax on the basis of the Double Taxation Avoidance Agreement between Germany and India?"
( 3 ) THE Income-tax Appellate Tribunal, Hyderabad, has consolidated 21 reference applications as common question are involved and it has drawn up a single reference application.
( 4 ) THE assessee is the Visakhapatnam Port Trust (hereinafter called the "port Trust" ). The Port Trust is under the Ministry of Shipping and Transport, Govt. of India. The Visakhapatnam Port exports a large amount of iron ore. In order to speed up the export operations, the Port Trust felt it necessary to install a plant known as "bucket Weel Reclaimer". The purpose of this was to remove iron ore mechanically from the wharfs and put it on a conveyer belt which takes the ore directly into the ship. Global tenders were called for by the Port Trust in June, 1967. A German company known as M/s. Maschinenfabrik Buckau R. Wilf (hereinafter called at the "german company) tendered a contract for supply of the Bucket Wheel Reclaimer on 26/06/1967.
( 5 ) AFTER several negotiation the contract was finalised on 12/09/1968.
( 6 ) THE terms of the lengthy contract dated 12/09/1968, may be briefly noticed. The German company, (i) undertook to supply and deliver to the Port Trust one Bucket Wheel Reclaimer as per drawing, and (ii) to delegate one engineer-erector for supervising the total erection and one special fitter for installation of electrical equipment. It is not in dispute that the engineer-erector delegated was Mr. Bremer and that no special fitter was delegated. The period of contract was 131/2 months and shipments were to be so effected that the material would arrive at the Visakhapatnam Port in ten months. The price payable was as follows (in DM and Rupees separately ). (a) Reclaimer weight Valye Payable in Rupees (Tons) (DM) in DM and (i) Supply items 326 1,889,687 1,399,860+ 9,19,900 including ballast DM 9,19,000 (ii)Erection costs and -- 101,726 90,000 + 27,000 Travelling expense DM 22,000 ------------------------------------------- 326 1,991,413 1,489,860+ 326 1,99,413+ 1,489,860+ 9,41,000 DM (b) Spares 16 210,416 210,416 DM DM -------------------------------------------- 342 2,201,829 1,700,276+ DM 9,41,000
( 7 ) THE terms of payment in clause 12 were in several parts : (i) DM 1,700,276 = (DM 1,399,860+dm 210,416) DM 1,610,276 + DM 90,000 was payable in Germany. 5% of the above amount was payable at the conclusion of the contract, 10% by opening letters of credit in four weeks and 85% (DM 1,445,240) in 20 equal semi-annual installments each of DM 72,22262, of which the first installment was payable as soon as the Port Trust certified that the unit was ready. For the credit remaining after payment of each of these installments, interest was to be paid by the Port Trust at 6% p. a. The deferred payment was to be guaranteed by the State Bank of India. The interest portion for the deferred payment was DM 451,637. Of course, the figures were to be redetermine according to the formula agreed in the price variation clause which depended on such variable factors like "the mixed material price" and the "standard wage" in Germany which would vary from time to time. (ii) Rs. 9,19,000 : This amount was payable to the German company towards the supply of certain items. But the invoice had to be made out by the person appointed by the German company, vide para. 12 (b) and the address and the bank account would be informed to the Port Trust by the German company. 10% of this amount was to be paid at the time of signing the contract, 40% in six mon
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